Senior Housing Execs See Acquisitions, Repositionings as Top Growth Opportunities
Labor costs were cited as the greatest financial concern for more than two-thirds (67%) of respondents.
CHICAGO—Seniors housing and long-term care executives found that many are optimistic about acquisitions, but are not so bullish on the development of new properties going forward.
The survey by Capital One found that 36% of surveyed executives believe that acquisitions present the most opportunity for growth, with 30% naming repositioning as the top option.
However, the development of new senior housing and long-term healthcare properties garnered only 14% of the vote in comparison with 24% who said the same in 2018, perhaps indicating a shift in investor appetite as the National Investment Center for Seniors Housing & Care recently announced that the seniors housing occupancy rate reached its lowest point since 2011 during the second quarter at 87.8%. The survey, conducted ahead of the NIC Fall Conference, polled 119 CEOs, CFOs and senior leaders within the industry.
Labor costs were cited as the greatest financial concern for more than two-thirds (67%) of respondents. While this has been cited as the greatest financial challenge for seniors housing for three years in a row, it has emerged as an even more pressing issue this year. In 2018, just 46% of executives cited it as their chief financial concern, Capital One states.
A total of 27% of respondents pointed to supply and demand imbalances as the second greatest concern. Respondents were far less focused on the availability/cost of capital, with just 4% naming it as their biggest financial worry. Despite capturing 10% of the vote last year, only 2% stated that impact of higher interest rates had them most worried for the 12 months ahead.
Capital One states that the quality of staff and care was seen as far and away the best way for seniors housing facilities to differentiate themselves from their competition, with 74% of respondents stating so.
“As the survey results indicate, the industry continues to deal with wage cost pressure as the unemployment rate hovers around 5%,” says Chris Taylor, managing director at Capital One Healthcare. “Providing the highest quality of care and service to residents, in the most cost-effective manner possible, will continue to be a primary focus for owner/operators in the senior housing space”
Many survey respondents felt the pace of construction activity could stagnate in the year ahead. Just 18% of respondents predict an uptick in construction activity, with 34% anticipating a decrease and the remainder (48%) seeing, at best, new construction activity will be similar to what was seen in the previous year.
Despite this, financing needs stayed similar year-over-year. When asked to name the type of financing that would be the most important to their organization in the next 12 months, one-third of respondents (33%) named real estate term loans. Other financing of importance to the industry included: construction loans (23%) refinancing of stabilized or repositioned facilities (22%) bridge to agency loans (including Fannie, Freddie, and HUD) (14%)
“Our customers are telling us that while the rate of new construction appears to be slowing, it will likely take another year or more for new units to be absorbed in many markets,” says Jim Seymour, senior managing director, Capital One Healthcare. “From a borrower’s perspective however, the availability of transitional and permanent term loan financing remains abundant to support their needs.”